3 Key 2023 Labour & Employment Law Learnings
Published:
December 11, 2023
Author(s):
As 2023 draws to a close, the time is right to take a look in the rearview mirror and reflect on the key labour and employment law learnings that will leave a lasting impression on your business.
1. Wallace Re-Awakened
The Supreme Court of Canda first introduced “Wallace” damages – compensation for mental distress caused by an employer’s breach of its duty of good faith and fair dealing in the manner of dismissal – in 1997. The damages were awarded via an extension of the reasonable notice period with the possibly of additional compensation (aggravated damages). The Court revisited Wallace damages in its 2008 decision in them in Honda Canada Inc. v. Keays, replacing “Wallace damages” with “moral damages”, doing away with the “Wallace bump-up” to calculate compensation, and merging “Wallace” and “aggravated” damages, making it harder for a dismissed employee to be compensated for the employer’s conduct in the manner of dismissal. After Honda (with a few notable exceptions, such as the 2014 Newfoundland and Labrador Supreme Court Trial Division decision in Turner v. Newfoundland and Labrador Legal Aid Commission) courts didn’t consider many such claims, and there were but a small number of successful claims in which only a few courts awarded more than $10,000. But in the last few years, it seems Wallace damages are re-awakening. For example:
2021. In its 2021 decision in Acumen Law Corp. v. Ojanen, the B.C. Supreme Court awarded $50,000 in moral damages to a dismissed employee (an articled clerk in a law firm) who suffered anxiety, depression, loss of appetite and inability to focus when their employer terminated their employment on the basis of unsubstantiated allegations of deceit and dishonesty, notified the law society, had pleadings delivered to the student in their professional legal training course in front of their classmates, and persisted in unfounded allegations through trial. Similarly, in its 2021 decision in McGraw v. Southgate (Township), the Ontario Superior Court of Justice awarded a dismissed employee $75,000 in moral damages because the employer dismissed the employee for sexist conduct rumours without ascertaining the truth or asking the employee about them.
2022. In its 2022 decision in Pohl v. Hudson’s Bay Company, the Ontario Superior Court of Justice awarded $45,000 in moral damages to a long term employee who suffered anxiety and depression when the employer dismissed them without cause, failed to comply with minimum standards requirements for termination pay and declined to issue them a Record of Employment (ROE) – then offered the employee a misleading lower paying position that required the employee to treat their dismissal as a resignation and denied the employee’s future constructive dismissal and common law reasonable notice rights.
2023. In its 2023 decision in Dornan v. New Brunswick (Health), a N.B. adjudicator awarded a high-profile public employee $200,000 aggravated damages for dismissing them in a “public, disingenuous, callous manner” that diminished his “otherwise stellar reputation”. On December 19, 2023, the N.B. Court of King’s Bench upheld the adjudicator’s decision.
The learning? Unfair, dishonest or insensitive conduct in the way in which you terminate your employment relationships with employees can still cost you – and maybe more than ever.
2. Employee Restrictions Reined-In
Employers understand the risk that departing employees will take sensitive information, compete for and solicit customers and other employees. The law does impose a few legal obligations on employees to their former employers. For example, “key” employees owe their employer a fiduciary duty that generally prevent a departed employee from competing with their former employer, soliciting their customers or employees, or disclosing their confidential information. And every employee owes their employer a duty of good faith and fidelity, which includes a duty not to reveal or use their employer’s confidential information to the employer’s detriment even after their employment ends. Generally, however, employees don’t owe their former employer a general duty not to compete with them or to solicit their customers or their employees.
Employers typically mitigate the risks posed by departing employees by negotiating contractual restrictions (restrictive covenants) both with their employees and sometimes even with other employers. Because restrictive covenants are a restraint on trade, to be enforceable they must go no further than is reasonably necessary to protect the employer’s legitimate business interests and not unduly restrain an employee from using their skills and making a living. The employer has the burden of proving the restrictive covenant is enforceable.
Courts are often less reluctant to enforce non-solicitation and confidentiality clauses, provided they are reasonable, as acceptable restraints of trade. For example, in the 2023 decision of the Alberta Court of King’s Bench in Catch Engineering Partnership v. Mai, the Court awarded an employer compensation when a former worker quit and breached both their contractual non-solicitation and confidentiality clauses by immediately joining a competitor and stealing one of their former employer’s customers. But the hurdle is extremely high to enforce for non-competition agreements.
Despite the possibility a court could find a restrictive covenant (particularly a non-competition agreement) unenforceable, many employers still include them in employment contracts for deterrent effect. At one time, this strategy carried little risk exposure. But developments are reining in employers’ ability to restrict their employee’s activities – and changing this risk exposure.
Legislative Prohibitions. The beginnings of a legislative trend restricting employers’ ability to impose restrictions on employees has emerged. For example:
- Ontario Employment Standards Act. Effective October 25, 2021, Ontario prohibited non-compete agreements with Ontario employees, with limited exceptions for executives or in the context of the sale of business. However, the prohibition doesn’t apply to non-compete agreements entered into before the effective date. And while Ontario is currently the only Canadian jurisdiction to prohibit non-competes, we expect it won’t be the last.
- Canada Competition Act. Effective June 23, 2023, it’s a criminal offence for any and all unaffiliated employers – regardless of whether they’re competitors or the agreement between them impacts competition – to enter into wage-fixing or mutual no-poaching agreements with respect to employees.
- U.S. Federal Trade Commission. In January 2023, the FTC proposed a new rule that would ban employers from imposing non-competes on their “workers” (paid and unpaid) and independent contractors – and unlike the Ontario legislation, would require employers to rescind existing non-competes and actively inform workers they are no longer valid.
Court Decisions. Recent court decisions respecting the invalidation of termination clauses and even of entire employment contracts due to non-compliance with minimum employment standards legislation raise the question: could non-compliance of any employment contract clause with minimum employment standards legislation or any legislation render invalid other employment contract terms – or even the whole employment contract?
- Waksdale v. Swegon North America Inc.. In this 2020 decision, the Ontario Court of Appeal decided the “for cause” termination clause in an employment contract was inconsistent with the employment standards legislation and therefore invalid. The Court further took the view that all termination clauses should be read together and decided the “without cause” termination clause was also invalid.
- Henderson v. Slavkin. The Ontario Superior Court of Justice took things even further in this 2022 decision. The Court decided the “without cause” termination clause of an employment contract was consistent with the minimum employment standards legislation. However, it also decided the termination provisions included in separate confidentiality and conflict of interest clauses in the same contract were inconsistent with the minimum employment standards legislation and were thus invalid – and further, because both clauses weren’t compliant with the legislation, the entire employment contract was invalid.
The learning? Including unenforceable restrictive covenants in an employment contract merely for deterrent effect could put the entire contract at risk.
3. Tracking Time Theft
There’s a difference between an employee slacking off – and time theft. Slacking off is underperformance and requires performance management. But time theft – where an employee lies about what they have been doing and gets paid for hours not worked – is dishonesty. And it can warrant immediate termination for cause. Time theft is historically difficult to prove – but the increasing use of employee surveillance and monitoring equipment is changing that.
Generally speaking, courts and arbitrators take the view that time theft is a serious breach of the employment relationship that justifies cause for termination of employment – but as with all misconduct, termination isn’t automatic. To terminate an employee’s employment based on time theft, the employer must prove both:
- The theft itself, on clear and cogent evidence: that there was pay for hours not worked and there was actual or inferred intention to do so.
- The context – the nature and degree of the misconduct, whether it violates the essential conditions of the employment contract, or whether it breaches the necessary faith and trust an employer must have in the employee – constitutes cause for termination.
One of the challenges in employers’ ability to prove time theft is the ability to produce the necessary clear and cogent evidence that an employee has engaged in time theft. But improvements in tracking technology and the drastic increase in remote employees, initially driven by the COVID Pandemic and persisting since, has given employers the ability to better track employees’ time use – and to better prove time theft. For example:
Unifor, Local 907 v. Irving Paper Ltd. In this 2023 decision of the New Brunswick Court of Appeal, the employer of a long-term employee, who had significant autonomy and no direct supervision, initially undertook physical surveillance then installed an electronic “live tracking” device on the employee’s company vehicle. The surveillance and tracking results showed the employee was regularly conducting non-work-related activities during the workday. The employer terminated the employee’s employment for cause. The employee grieved. The arbitrator decided the employee had misappropriated the employer’s time and resources – but, citing the employee’s long service and clean disciplinary record, the employment relationship wasn’t irretrievable broken. The arbitrator reinstated the employee without back pay (they had been off for seven months) or any other form of compensation or benefits. The employer sought judicial review of the arbitration decision. The N.B. Court of Queen’s Bench decided the arbitrator’s factual findings were inconsistent with their conclusion and their approach was inconsistent with the applicable jurisprudence without any compelling basis. The Court confirmed the employee’s dismissal. The N.B. Court of Appeal ultimately upheld this decision.
Besse v. Reach CPA Inc. In this 2023 decision of the BC Civil Resolution Tribunal (CRT), the employee accountant worked remotely from home and was permitted to use her work laptop for personal use. After the employee raised a concern they weren’t working as effectively as they could, the employer installed a time-tracking program on their laptop. The employer subsequently became concerned about the employee’s timesheet entry for a file they hadn’t worked on. A review of the tracking data indicated the employee recorded 50.76 hours on their timesheets during which they didn’t perform work-related tasks. The employer met with the employee, confronted them with the data, and ultimately terminated their employment. The Tribunal rejected the employee’s arguments that the software was hard to use to differentiate between work and personal activities and that she spent time working on papers copies based on the employer’s evidence demonstrating how the software worked. The employee also admitted the misconduct during the termination meeting. The Tribunal concluded the software “likely accurately recorded” the employee’s work activities, they committed time theft, and termination for cause was justified, noting trust and honesty is especially important in the remote work environment where employees work without supervision.
The learning? Monitoring & surveillance technology (properly implemented) can improve your odds of identifying – and proving – time theft.
Please contact your McInnes Cooper lawyer or any member of our Labour & Employment Law Team @ McInnes Cooper to discuss actioning these 2023 labour and employment law learnings.
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